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Thoughts about economic and business issues by and for the NYU Stern community -- and others with similar interests. The content reflects the views of individual NYU faculty but not necessarily those of NYU. Comments and suggestions welcome. Special thanks to our tech consultant, MBA alum Tim Reilly.

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Be careful what you wish for

March 28, 2015

The New York Times has a classic example of incentives not working as intended. Bernie Ebbers had an incentive to keep WorldCom’s stock price up, but he did it by cooking the books. Sears (this is an even older one) paid commissions for auto repairs, until the people doing the repairs realized they could make more money doing repairs that didn’t need doing. Now a Times op ed by Katherine Bouton notes that policies inflicting retirement on police officers who use hearing aids tend to “discourage officers with hearing loss from coming forward, with the result that we have many police officers with uncorrected hearing loss.” Yup, that’s how it would work.

PS: Richie Freedman, our resident management guru, tells us this is all in Steve Kerr’s classic, “On the folly of rewarding A, while hoping for B.” The title pretty much tells you the story.